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16 Jul 2013
Flash: OCR hikes on the horizon? – BNZ
FXstreet.com (New York) - According to Mike Jones, an analyst at BNZ, “We are moving steadily closer to OCR hikes that we believe will take place from Q1 2014.”
Indeed, the market has moved toward pricing a similar view, even as the RBNZ still suggests rates unchanged until H2 next year. “We see higher yields to year-end and beyond, with dips likely to be shallow/short-lived. Recent rises in yields have greatly reduced ‘value’ in hedging. However, decent value is still seen in 2-4-year rates.” Jones adds.
In addition, hedging offers the added benefit of ‘certainty’ in a raising rates environment. The 2-10s swap curve has moved into a higher 110-140bps range to year-end, in our view. “We continue to expect flattening toward 50bps next year. Easing in bank funding costs is likely to provide only marginal relief relative to rising underlying yields in the year ahead.”
Indeed, the market has moved toward pricing a similar view, even as the RBNZ still suggests rates unchanged until H2 next year. “We see higher yields to year-end and beyond, with dips likely to be shallow/short-lived. Recent rises in yields have greatly reduced ‘value’ in hedging. However, decent value is still seen in 2-4-year rates.” Jones adds.
In addition, hedging offers the added benefit of ‘certainty’ in a raising rates environment. The 2-10s swap curve has moved into a higher 110-140bps range to year-end, in our view. “We continue to expect flattening toward 50bps next year. Easing in bank funding costs is likely to provide only marginal relief relative to rising underlying yields in the year ahead.”